<PAGE>
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND GOVERNMENT SECURITIES FUND TREASURY SECURITIES FUND
1285 AVENUE OF THE AMERICAS . NEW YORK, NEW YORK 10019
Professionally managed money market funds seeking:
. High Current Income
. High Liquidity
. Preservation of Capital
Money Market Fund, Government Securities Fund and Treasury Securities Fund are
series of Liquid Institutional Reserves, a Massachusetts business trust
("Trust"). Each Fund offers two separate classes of shares--Institutional
shares and Financial Intermediary shares. Institutional shares are available
for purchase primarily by institutional investors. Financial Intermediary
shares are available for purchase by banks and other financial intermediaries
for the benefit of their customers.
This Prospectus concisely sets forth information that a prospective investor
should know about the Funds before investing. Please retain this Prospectus
for future reference. A Statement of Additional Information dated September 1,
1998 (which is incorporated by reference herein) has been filed with the
Securities and Exchange Commission ("SEC"or "Commission"). The Statement of
Additional Information can be obtained without charge, and further inquiries
can be made, by contacting the Funds, your PaineWebber Investment Executive or
PaineWebber's correspondent firms, or by calling toll free 1-888-LIR-FUND. In
addition, the Commission maintains a website (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference and other information regarding registrants that file electronically
with the Commission.
AN INVESTMENT IN A FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH EACH FUND SEEKS
TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN A FUND.
Not FDIC insured. May lose value. No bank guarantee.
- -------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED SEPTEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights................................................................. 3
Financial Highlights....................................................... 8
Investment Objectives and Policies......................................... 10
Purchases.................................................................. 13
Exchanges.................................................................. 14
Redemptions................................................................ 15
Valuation of Shares........................................................ 15
Dividends and Taxes........................................................ 16
Management................................................................. 16
Financial Intermediaries................................................... 17
Performance Information.................................................... 18
General Information........................................................ 18
</TABLE>
2
<PAGE>
HIGHLIGHTS
See elsewhere in the Prospectus for more information on the topics discussed
in these highlights.
The Funds: Professionally managed money market funds. The Funds are
designed primarily for institutions as an economical and
convenient means for the investment of short-term funds
that they hold for their own account or hold or manage for
others.
Each Fund offers investors the choice of investing in two
separate classes of shares.
. Institutional shares are available for purchase primarily
by institutional investors.
. Financial Intermediary shares are available for purchase
solely by banks and other financial intermediaries for
the benefit of their customers. Financial Intermediary
shares bear all fees payable by the Funds to those
financial intermediaries for certain services they
provide to the beneficial owners of those shares.
See "Purchases," "Redemptions," "Financial Intermediaries"
and "Valuation of Shares."
Investment
Objectives and
Policies: The investment objective of each Fund is to earn high
current income to the extent consistent with the
preservation of capital and the maintenance of liquidity
through investments in a diversified portfolio of high
quality, short-term, U.S. dollar-denominated money market
instruments. Each Fund seeks to meet this objective by
following different investment policies:
Money Market Fund invests in high quality money market
instruments.
Government Securities Fund invests in short-term U.S.
government securities, the interest income from which is
generally exempt from state and local income taxation.
Treasury Securities Fund invests exclusively in securities
issued by the U.S. Treasury, which are supported by the
full faith and credit of the United States. The interest
from these investments is generally exempt from state and
local income taxation.
Net Assets at Money Market Fund--$1.5 billion
July 31, 1998: Government Securities Fund--$90.1 million
Treasury Securities Fund--$178.8 million
Distributor and
Investment
Adviser: PaineWebber Incorporated ("PaineWebber"). See "Management."
Sub-Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"). See "Management."
Purchases: Shares may be purchased through PaineWebber, its
correspondent firms or through First Data Investor Services
Group, Inc., the Funds' transfer agent ("Transfer Agent").
See "Purchases."
Redemptions: Shares may be redeemed through PaineWebber, its
correspondent firms or the Transfer Agent. See
"Redemptions."
3
<PAGE>
Dividends: Declared daily and paid monthly. All dividends are
automatically paid in Fund shares unless the shareholder
elects instead to have dividends transmitted by federal
funds wire to either a designated bank account or
PaineWebber account. See "Dividends and Taxes."
Minimum Initial $1,000,000 for Money Market Fund and Government Securities
Purchase: Fund (or in a combination of both) and $250,000 for
Treasury Securities Fund; no minimum for subsequent
purchases. (Financial intermediaries may establish
different minimums for their customers who purchase shares
through them.)
Public Offering Net asset value, which each Fund seeks to maintain at $1.00
Price: per share.
WHO SHOULD INVEST. The Funds are designed primarily for institutions as an
economical and convenient means for the investment of short-term funds that
they hold for their own account or hold or manage for others. These
institutions include corporations, banks, trust companies, insurance companies,
investment counsellors, pension funds, employee benefit plans, professional
firms, trusts, estates and educational, religious and charitable organizations.
See "Purchases" and "Management."
RISK FACTORS. There can be no assurance that any Fund will achieve its
investment objective. While the types of money market securities in which each
Fund invests generally are considered to have low risk of loss of principal or
interest, these securities are not completely risk free. In addition, during
periods when interest rates are declining or rising, a Fund's yield will tend
to lag behind prevailing short-term market rates. Money Market Fund may invest
in U.S. dollar-denominated securities of foreign issuers, which may present a
greater degree of risk than investments in securities of domestic issuers. See
"Investment Objectives and Policies" for more information about these and other
risk factors.
4
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS. The following tables are intended to
assist investors in understanding the expenses associated with investing in
each Fund.
SHAREHOLDER TRANSACTION EXPENSES
FOR ALL FUNDS
<TABLE>
<S> <C>
Sales charge on purchases of shares........................................ None
Sales charge on reinvested dividends....................................... None
Redemption fee or deferred sales charge.................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
AND
MONEY MARKET FUND TREASURY SECURITIES FUND
--------------------------- ---------------------------
FINANCIAL FINANCIAL
INSTITUTIONAL INTERMEDIARY INSTITUTIONAL INTERMEDIARY
SHARES SHARES SHARES SHARES**
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers).............................. 0.20% 0.20% 0.20% 0.20%
Other Expenses:
Shareholder Servicing Fees...................................... 0.00% 0.25% 0.00% 0.25%
Miscellaneous Expenses (after reimbursements)................... 0.09% 0.09% 0.10% 0.10%
Total Other Expenses (after reimbursements)...................... 0.09% 0.34% 0.10% 0.35%
------ ------ ------ ------
Total Operating Expenses (after fee waivers and reimbursements).. 0.29% 0.54% 0.30% 0.55%
====== ====== ====== ======
</TABLE>
EXAMPLE OF EFFECT OF FUND EXPENSES*
An investor would pay directly or indirectly the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund
Institutional shares.......................... $ 3 $ 9 $16 $37
Financial Intermediary shares................. $ 6 $17 $30 $68
Government Securities Fund
Institutional shares.......................... $ 3 $10 $17 $38
Financial Intermediary shares................. $ 6 $18 $31 $69
Treasury Securities Fund
Institutional shares.......................... $ 3 $10 $17 $38
Financial Intermediary shares................. $ 6 $18 $31 $69
</TABLE>
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in the Example of a 5%
annual return are required by regulations of the SEC applicable to all mutual
funds; the assumed 5% annual return is not a prediction of, and does not
represent, any Fund's projected or actual performance.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND EACH FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses of each Fund will depend upon, among other things, the
level of average net assets and the extent to which each Fund incurs variable
expenses, such as transfer agency costs, and the extent to which PaineWebber
waives fees or reimburses a Fund for expenses.
(footnotes on following page)
5
<PAGE>
(footnotes from previous page)
*Information in the expense table and the example reflect an agreement by
PaineWebber and Mitchell Hutchins to waive 0.05% of the management fees and to
reduce or otherwise limit the expenses of each Fund, on an annualized basis, to
0.30% and 0.55% of each Fund's average daily net assets for Institutional
shares and Financial Intermediary shares, respectively. In the absence of this
agreement, Money Market Fund's, Government Securities Fund's and Treasury
Securities Fund's total operating expenses, stated as a percentage of average
net assets, would have been 0.34%, 0.59% and 0.47%, respectively, for
Institutional shares and 0.59%, 0.84% and 0.72%, respectively, for Financial
Intermediary shares. Without this agreement, under the assumptions set forth in
the example above, the expenses on a $1,000 investment in Money Market Fund,
Government Securities Fund and Treasury Securities Fund at the end of one,
three, five and ten years would have been $3, $11, $19 and $43; $6, $19, $33
and $74; and $15, $15, $26 and $59, respectively, for Institutional shares and
would have been $6, $19, $33 and $74; $9, $27, $47 and $104; and $7, $23, $40
and $89, respectively, for Financial Intermediary shares. PaineWebber and
Mitchell Hutchins do not anticipate that they will waive fees or reimburse
expenses in the current fiscal year, except to the extent necessary to comply
with the fee waiver and total expense limitation agreement described above.
**No Financial Intermediary shares were outstanding during the last fiscal
year of Government Securities Fund and Treasury Securities Fund. "Miscellaneous
Expenses" for the Financial Intermediary shares of these two Funds have been
estimated.
6
<PAGE>
(This Page Intentionally Left Blank)
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide investors with selected data and ratios for one
share of each class of shares outstanding for each Fund for each of the peri-
ods shown. Financial Intermediary shares were not outstanding during the fis-
cal year ended April 30, 1998 for Government Securities Fund or Treasury Secu-
rities Fund and were outstanding for only limited periods of time prior to
that fiscal year for Money Market Fund and Government Securities Fund. This
information is supplemented by the financial statements, accompanying notes
and the unqualified report of Ernst & Young LLP, independent auditors, which
appear in the Funds' Annual Report to Shareholders for the fiscal year ended
April 30, 1998 and are incorporated by reference into the Statement of Addi-
tional Information. The Funds' Annual Report to Shareholders may be obtained
without charge by calling 1-888-LIR-FUND. The financial statements and notes,
as well as the information in the tables below, relating to the fiscal years
ended April 30, 1998, 1997 and 1996, have been audited by Ernst & Young LLP.
The financial information for periods prior to 1996 was audited by another in-
dependent accounting firm, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------------------------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
APRIL 30, JUNE 3, 1991+
-------------------------------------------------------------- TO
1998 1997 1996 1995++ 1994 1993 APRIL 30, 1992
---------- ---------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- -------- -------- -------- -------- --------
Net investment
income......... 0.054 0.052 0.055 0.048 0.030 0.031 0.044
Net realized
losses from
investment
transactions... -- -- -- (0.008) -- -- --
---------- ---------- -------- -------- -------- -------- --------
Net increase
from investment
operations..... 0.054 0.052 0.055 0.040 0.030 0.031 0.044
---------- ---------- -------- -------- -------- -------- --------
Dividends from
net investment
income......... (0.054) (0.052) (0.055) (0.048) (0.030) (0.031) (0.044)
---------- ---------- -------- -------- -------- -------- --------
Distributions
from net
realized gain
from investment
transactions... (0.000) -- -- -- -- -- --
---------- ---------- -------- -------- -------- -------- --------
Total dividends
and
distributions
to
shareholders... (0.054) (0.052) (0.055) (0.048) (0.030) (0.031) (0.044)
---------- ---------- -------- -------- -------- -------- --------
Contribution to
capital from
predecessor
adviser (1).... -- -- -- 0.008 -- -- --
---------- ---------- -------- -------- -------- -------- --------
Net asset value,
end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ======== ======== ========
Total investment
return (2)..... 5.52% 5.33% 5.61% 4.91% 3.03% 3.16% 4.52%
========== ========== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)........ $1,591,789 $1,246,799 $421,878 $220,844 $254,281 $385,618 $335,868
Expenses to
average net
assets net of
waivers/reimbursements
from adviser... 0.29% 0.25% 0.31% 0.35% 0.33% 0.34% 0.30%*
Expenses to
average net
assets before
waivers/reimbursements
from adviser... 0.34% 0.30% 0.37% 0.37% 0.33% 0.36% 0.41%*
Net investment
income to
average net
assets net of
waivers/reimbursements
from adviser... 5.38% 5.24% 5.47% 4.68% 2.96% 3.13% 4.76%*
Net investment
income to
average net
assets before
waivers/
reimbursements
from adviser... 5.33% 5.19% 5.41% 4.66% 2.96% 3.11% 4.65%*
<CAPTION>
FINANCIAL INTERMEDIARY SHARES**
--------------------------------------------------
FOR THE PERIOD
FOR THE PERIOD FOR THE MARCH 17, 1994+
JANUARY 14, 1998+ YEAR ENDED TO
TO APRIL 30, 1998 APRIL 30, 1995++ APRIL 30, 1994
----------------- ---------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00
----------------- ---------------- ---------------
Net investment
income......... 0.015 0.027 0.004
Net realized
losses from
investment
transactions... -- -- --
----------------- ---------------- ---------------
Net increase
from investment
operations..... 0.015 0.027 0.004
----------------- ---------------- ---------------
Dividends from
net investment
income......... (0.015) (0.027) (0.004)
----------------- ---------------- ---------------
Distributions
from net
realized gain
from investment
transactions... -- -- --
----------------- ---------------- ---------------
Total dividends
and
distributions
to
shareholders... (0.015) (0.027) (0.004)
----------------- ---------------- ---------------
Contribution to
capital from
predecessor
adviser (1).... -- -- --
----------------- ---------------- ---------------
Net asset value,
end of period.. $ 1.00 $ 1.00 $ 1.00
================= ================ ===============
Total investment
return (2)..... 1.51% 3.10% 0.37%
================= ================ ===============
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)........ $ 16,302 -- $ 9,000
Expenses to
average net
assets net of
waivers/reimbursements
from adviser... 0.54%* 0.60%* 0.58%*
Expenses to
average net
assets before
waivers/reimbursements
from adviser... 0.59%* 0.62%* 0.58%*
Net investment
income to
average net
assets net of
waivers/reimbursements
from adviser... 5.13%* 4.17%* 2.93%*
Net investment
income to
average net
assets before
waivers/
reimbursements
from adviser... 5.07%* 4.15%* 2.93%*
</TABLE>
- -------
+ Issuance of shares.
++ Sub-advisory functions for the Fund were transferred from Kidder Peabody
Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
** For the period May 1, 1997 to January 13, 1998, for the years ended April
30, 1996 and 1997 and for the period December 24, 1994 to April 30, 1995
there were no outstanding Financial Intermediary shares of Money Market
Fund. For the years ended April 30, 1996, 1997 and 1998 and for the period
from March 22, 1995 to April 30, 1996 there were no outstanding Financial
Intermediary shares of Government Securities Fund.
(1) Kidder Peabody Asset Management, Inc., the Funds' predecessor investment
adviser and administrator, purchased certain of Money Market Fund's and
Government Securities Fund's variable rate securities on July 6, 1994 at
prices equal to the securities' amortized cost plus accrued and unpaid in-
terest. Since the purchases were made at prices above the securities' cur-
rent fair value, the Funds recorded a contribution to capital.
(2) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the
last day of each period reported. Total investment return for periods of
less than one year has not been annualized.
8
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
- -----------------------------------------------------------------------------------------
FINANCIAL
INTERMEDIARY
INSTITUTIONAL SHARES SHARES**
- ------------------------------------------------------------------------ ----------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE PERIOD
APRIL 30, JUNE 3, 1991+ JULY 12, 1994+
- -------------------------------------------------------- TO TO
1998 1997 1996 1995++ 1994 1993 APRIL 30, 1992 APRIL 30, 1995++
- -------- -------- -------- ------- ------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- ------- ------- -------- -------- -------
0.052 0.051 0.053 0.048 0.029 0.031 0.044 0.032
-- -- 0.001 (0.008) -- -- -- --
- -------- -------- -------- ------- ------- -------- -------- -------
0.052 0.051 0.054 0.040 0.029 0.031 0.044 0.032
- -------- -------- -------- ------- ------- -------- -------- -------
(0.052) (0.051) (0.054) (0.047) (0.029) (0.031) (0.044) (0.032)
- -------- -------- -------- ------- ------- -------- -------- -------
- -------- -------- -------- ------- ------- -------- -------- -------
- -------- -------- -------- ------- ------- -------- -------- -------
-- -- -- 0.007 -- -- -- --
- -------- -------- -------- ------- ------- -------- -------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======= ======== ======== =======
5.32% 5.20% 5.50% 4.61% 2.97% 3.13% 4.46% 3.31%
======== ======== ======== ======= ======= ======== ======== =======
$100,140 $106,843 $ 43,770 $54,903 $84,209 $102,611 $144,853 --
0.30% 0.30% 0.32% 0.35% 0.35% 0.34% 0.30%* 0.60%*
0.59% 0.53% 0.56% 0.47% 0.37% 0.36% 0.41%* 0.72%*
5.21% 5.09% 5.52% 4.75% 2.95% 3.11% 4.63%* 4.58%*
4.91% 4.86% 5.28% 4.63% 2.93% 3.09% 4.52%* 4.46%*
<CAPTION>
GOVTREASURY SECURITIES FUNDERNMENT SECURITIES FUND
- -----------------------------------------------------------------------------------------
INSTITUTIOINSTITUTIONAL SHARESNAL SHARES
- ----------------------------------------------------------------------------------
FOR THE YEFOR THE YEARS ENDEDARS ENDED FOR THE PERIOD
APRIL 30, APRIL 30, DECEMBER 6,
- ------------------------------------------------------------------- 1991+ TO
1998 1998 1997 1996 1995++ 1994 1993 APRIL 30, 1992
- --------- --------- --------- -------- --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------- --------- --------- -------- --------- -------- --------- --------------
0.052 0.051 0.049 0.048 0.049 0.028 0.029 0.016
-- -- -- 0.003 (0.002) -- -- --
- --------- --------- --------- -------- --------- -------- --------- --------------
0.052 0.051 0.049 0.051 0.047 0.028 0.029 0.016
- --------- --------- --------- -------- --------- -------- --------- --------------
(0.052) (0.051) (0.049) (0.051) (0.047) (0.028) (0.029) (0.016)
- --------- --------- --------- -------- --------- -------- --------- --------------
- --------- --------- --------- -------- --------- -------- --------- --------------
- --------- --------- --------- -------- --------- -------- --------- --------------
-- -- -- -- -- -- -- --
- --------- --------- --------- -------- --------- -------- --------- --------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ======== ========= ======== ========= ==============
5.32% 5.23% 5.02% 5.23% 4.75% 2.87% 2.89% 1.62%
========= ========= ========= ======== ========= ======== ========= ==============
$100,140 $179,708 $ 65,893 $19,624 $ 23,762 $38,602 $ 8,064 $ 15,003
0.30% 0.30% 0.30% 0.32% 0.22% 0.18% 0.33% 0.06%*
0.59% 0.47% 0.72% 0.94% 0.84% 0.76% 1.10% 2.05%*
5.21% 5.09% 4.97% 5.71% 5.51% 3.66% 3.65% 5.88%*
4.91% 4.92% 4.56% 5.09% 4.89% 3.08% 2.88% 3.89%*
</TABLE>
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is to earn high current income to the
extent consistent with the preservation of capital and the maintenance of li-
quidity through investments in a diversified portfolio of high quality, short-
term, U.S. dollar-denominated money market instruments. Each Fund seeks to
meet this objective by following different investment policies.
Each Fund seeks to maintain a dollar-weighted average portfolio maturity of
90 days or less. All securities in which each Fund invests have or are deemed
to have remaining maturities of 397 days or less on the date of purchase.
MONEY MARKET FUND
Money Market Fund invests in high quality, short-term, U.S. dollar-denomi-
nated money market instruments of U.S. and foreign issuers. These instruments
include government securities, obligations of banks, commercial paper and
other short-term obligations issued by corporations, partnerships, trusts or
other entities, corporate bonds and notes, variable and floating rate securi-
ties, variable amount master demand notes, and participation interests or re-
purchase agreements involving any of the foregoing securities. Participation
interests are pro rata interests in securities held by others.
The U.S. government securities in which Money Market Fund may invest include
direct obligations of the U.S. Treasury (such as Treasury bills, notes and
bonds) and obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including securities that are supported by the full faith
and credit of the United States (such as Government National Mortgage Associa-
tion certificates ("GNMAs")), securities supported primarily or solely by the
creditworthiness of the issuer (such as securities of the Resolution Funding
Corporation and the Tennessee Valley Authority) and securities that are sup-
ported primarily or solely by specific pools of assets and the creditworthi-
ness of a U.S. government-related issuer (such as mortgage-backed securities
issued by Fannie Mae, also known as the Federal National Mortgage Associa-
tion).
Money Market Fund may invest in obligations (including certificates of de-
posit, bankers' acceptances and similar obligations) of U.S. and foreign banks
having total assets in excess of $1.5 billion at the time of purchase. The
Fund may invest in non-negotiable time deposits of U.S. banks, savings associ-
ations and similar depository institutions having total assets in excess of
$1.5 billion at the time of purchase only if the time deposits have maturities
of seven days or less.
The securities purchased by Money Market Fund consist only of obligations
that are "First Tier Securities" as defined in Rule 2a-7 under the Investment
Company Act of 1940 ("1940 Act"). As so defined, First Tier Securities include
securities that are rated in the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by a single NRSRO if only one NRSRO has assigned the obligation a short-term
rating. The Fund also may rely on the short-term rating and credit quality of
a guarantee of a security (including bond insurance, letters of credit or un-
conditional demand features) or the issuer of the guarantee to determine
whether the security is eligible for purchase. First Tier Securities also in-
clude unrated securities if Mitchell Hutchins has determined the obligations
to be of comparable quality to rated securities that so qualify. The Fund gen-
erally may invest no more than 5% of its total assets in the securities of a
single issuer (other than securities issued by the U.S. government, its agen-
cies and instrumentalities).
GOVERNMENT SECURITIES FUND
Government Securities Fund invests in U.S. government securities, the inter-
est income from which is generally exempt from state and local income taxa-
tion. The Fund intends to emphasize investments in securities eligible for
this exemption in the maximum number of states. Securities generally eligible
for this exemption include those issued by the U.S. Treasury and those issued
by certain agencies, authorities or instrumentalities of the U.S. government,
including the Federal Home Loan Banks, Federal Farm Credit Banks Funding Corp.
and SLM Holding Corp. (formerly known as the Student Loan Marketing Associa-
tion). The Fund seeks to invest substantially all of its assets in securities
with these characteristics. Under extraordinary circumstances, however, such
as when securities with those characteristics are unavailable at prices deemed
reasonable by Mitchell Hutchins, the Fund may temporarily hold cash or invest
in other U.S. government securities, such as GNMAs and those issued by Freddie
Mac, also known as the Federal Home Loan Mortgage Corporation, and the Small
10
<PAGE>
Business Administration. The Fund will not enter into repurchase agreements.
Each investor should consult its own tax advisor to determine whether dis-
tributions from Government Securities Fund derived from interest on its port-
folio securities are exempt from state income taxation in the investor's own
state.
TREASURY SECURITIES FUND
Treasury Securities Fund invests exclusively in securities issued by the
U.S. Treasury, which are supported by the full faith and credit of the United
States. The interest income on these securities is generally exempt from state
and local income taxation. The Fund will not enter into repurchase agreements.
OTHER INVESTMENT POLICIES AND RISK FACTORS
U.S. GOVERNMENT SECURITIES. Money Market Fund may also acquire custodial re-
ceipts that evidence ownership of future interest payments, principal payments
or both that have been "stripped" from certain U.S. Treasury notes or bonds.
These custodial receipts are known by various names, including "Treasury In-
vestment Growth Receipts" ("TIGRs") and "Certificates of Accrual on Treasury
Securities" ("CATS"). Each Fund may also invest in separately traded principal
and interest components of securities issued or guaranteed by the U.S. Trea-
sury. The principal and interest components of selected securities are traded
independently under the Separate Trading of Registered Interest and Principal
of Securities ("STRIPS") program. Under the STRIPS program, the principal and
interest com
ponents are individually numbered and separately issued by the U.S. Treasury.
The staff of the SEC currently takes the position that interests in "stripped"
U.S. government securities that are not part of the STRIPS program are not
U.S. government securities.
COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS. Money Market Fund may
purchase commercial paper, which includes short-term obligations issued by
corporations, partnerships, trusts or other entities to finance short-term
credit needs. The Fund may also purchase non-convertible debt obligations with
no more than 397 days remaining to maturity at the time of purchase. Short-
term obligations issued by trusts or special purpose entities may include cer-
tificates or notes that represent participations in or are backed by pools of
mortgages or credit card, automobile or other types of receivables or finan-
cial assets.
VARIABLE AND FLOATING RATE SECURITIES. Money Market Fund and Government
Securities Fund may purchase variable and floating rate securities with
remaining maturities in excess of 13 months issued by U.S. government agencies
or instrumentalities or guaranteed by the U.S. government. In addition, Money
Market Fund may purchase variable and floating rate securities of other
issuers with remaining maturities in excess of 13 months if they are subject
to a demand feature exercisable within 13 months or less. The yield on these
securities is adjusted in relation to changes in specific rates, such as the
prime rate, and different securities may have different adjustment rates. A
demand feature gives a Fund the right to tender them back to the issuer or a
remarketing agent and receive the amortized cost of the security plus accrued
interest prior to maturity. The demand feature may be backed by letters of
credit or other liquidity support arrangements provided by banks or other
financial institutions, whose credit standing affects the credit quality of
the obligation. Changes in the credit quality of these institutions could
cause losses to a Fund and affect its share price.
VARIABLE AMOUNT MASTER DEMAND NOTES. Securities purchased by Money Market
Fund may include variable amount master demand notes, which are unsecured re-
deemable obligations that permit investment of varying amounts at fluctuating
interest rates under a direct agreement between the Fund and the issuer. The
principal amount of these notes may be increased from time to time by the par-
ties (subject to specified maximums) or decreased by the Fund or the issuer.
These notes are payable on demand and may or may not be rated.
REPURCHASE AGREEMENTS. Money Market Fund may enter into repurchase agree-
ments with U.S. banks and dealers with respect to any security in which that
Fund is authorized to invest, except that securities subject to repurchase
agreements may have maturities in excess of 13 months. Repurchase agreements
are transactions in which the Fund purchases obligations from banks, securi-
ties dealers or their respective affiliates and simultaneously commits to re-
sell the obligations to the counterparty at an agreed-upon date or upon demand
and at a price reflecting a market rate of interest unrelated to the coupon
11
<PAGE>
rate or maturity of the purchased obligations. The Fund maintains custody of
the underlying obligations prior to their repurchase, either through its regu-
lar custodian or through a special "tri-party" custodian or sub-custodian that
maintains separate accounts for both the Fund and its counterparty. Thus, the
obligation of the counterparty to pay the repurchase price on the date agreed
to or upon demand is, in effect, secured by such obligations.
Repurchase agreements carry certain risks not associated with direct invest-
ments in securities, including possible decline in the market value of the un-
derlying obligations. Repurchase agreements involving obligations other than
U.S. government securities (such as commercial paper and corporate bonds) may
be subject to special risks and may not have the benefit of certain
protections in the event of the counterparty's insolvency. If the counterparty
or a guarantor becomes insolvent, Money Market Fund may suffer delays, costs
and possible losses in connection with the disposition of the collateral. The
Fund intends to enter into repurchase agreements only with counterparties in
transactions believed by Mitchell Hutchins to present minimal credit risks in
accordance with guidelines established by the board.
PURCHASE AND SALE TRANSACTIONS. Each Fund may enter into simultaneous pur-
chase and sale transactions. Upon entering into the transaction, the other
party agrees to buy from the Fund the same or a security similar to that it is
selling, at a mutually agreed upon time and price, thereby determining the
yield during the term of the transaction. In purchase and sale transactions, a
Fund earns interest on the underlying security during the period it is held by
the Fund and may also experience a gain or loss upon the resale of the securi-
ty. If the other party were to default on its obligation, and the security
were sold for a lesser amount, a Fund would realize a loss.
FOREIGN SECURITIES. Money Market Fund's investments in U.S. dollar-denomi-
nated securities of foreign issuers may involve risks that are different from
investments in U.S. issuers. These risks may include future unfavorable polit-
ical and economic developments, possible withholding taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental re-
strictions that might affect the payment of principal or interest on the
Fund's portfolio securities. Additionally, there may be less publicly avail-
able information about foreign issuers because they may not be subject to the
same regulatory requirements as domestic issuers.
RISKS OF MONEY MARKET INSTRUMENTS. While the types of money market instru-
ments in which each Fund invests generally are considered to have low risk of
loss of principal or interest, they are not completely risk free. An issuer or
guarantor may be unable or unwilling to pay interest or repay principal on its
obligations for many reasons, including adverse changes in its own financial
condition or in economic conditions generally.
During periods when interest rates are declining or rising, a Fund's yield
will tend to lag behind prevailing short-term market rates. This means that in
periods of declining interest rates a Fund's yield will tend to be somewhat
higher than prevailing short-term market rates, and in periods of rising in-
terest rates its yield generally will be somewhat lower. Also, when interest
rates are falling, net cash inflows from the continuous sale of a Fund's
shares are likely to be invested in portfolio instruments that produce lower
yields than the balance of its portfolio, thereby reducing its yield. In peri-
ods of rising interest rates the opposite can be true.
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend its securities to quali-
fied broker-dealers or institutional investors in an amount up to 33 1/3% of
the Fund's total assets. Lending securities enables the Funds to earn addi-
tional income, but could result in a loss or delay in recovering these securi-
ties.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in il-
liquid securities. These include repurchase agreements maturing in more than
seven days and securities whose disposition is restricted under the federal
securities laws, other than those that Mitchell Hutchins has determined to be
liquid pursuant to guidelines established by the board. The Funds do not con-
sider securities that are eligible for resale under SEC Rule 144A to be illiq-
uid if Mitchell Hutchins has determined them to be liquid in accordance with
procedures approved by the board.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a "when-issued"
or forward commitment basis, that is, for delivery beyond the normal settle-
ment date at a stated price and yield. A Fund generally would not pay for such
securities or start earning interest on them
12
<PAGE>
until they are received. However, when a Fund purchases securities on a when-
issued basis, it immediately assumes the risks of ownership, including the
risk of price fluctuation. Failure by the issuer to deliver a security pur-
chased on a when-issued basis may result in a loss or missed opportunity to
make an alternative investment.
OTHER INVESTMENT POLICIES. Each Fund may borrow money from banks for tempo-
rary purposes in an aggregate amount not exceeding 33 1/3% of the value of its
total assets. The costs associated with borrowing money may reduce a Fund's
net investment income. Money Market Fund may invest up to 10% of its total as-
sets in the securities of other money market funds.
A Fund's investments in securities with remaining maturities in excess of 13
months, such as variable and floating rate securities and variable amount mas-
ter demand notes, must comply with conditions established by the SEC under
which these securities may be considered to have remaining maturities of 13
months or less.
In managing each Fund's portfolio, Mitchell Hutchins may employ a number of
professional money management techniques to respond to changing economic and
money market conditions and to shifts in fiscal and monetary policy. These
techniques include varying the composition and the weighted average maturity
of each Fund's portfolio based upon its assessment of the relative values of
various money market instruments and future interest rate patterns. Mitchell
Hutchins may also seek to improve a Fund's yield by purchasing or selling se-
curities to take advantage of yield disparities among similar or dissimilar
money market instruments that regularly occur in the money markets.
New forms of money market instruments continue to be developed. Each Fund
may invest in such instruments to the extent consistent with its investment
objective.
A Fund's investment objective may not be changed without the approval of its
shareholders. Certain other investment limitations, as described in the State-
ment of Additional Information, also may not be changed without shareholder
approval. All other investment policies may be changed by the board without
shareholder approval.
YEAR 2000 RISK. Like other mutual funds, financial and business
organizations around the world, a Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and
entities with computer systems that are linked to that Fund's records do not
properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Issue."
Mitchell Hutchins is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer systems that it uses
and to obtain satisfactory assurances that comparable steps are being taken by
each Fund's other major service providers. However, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on a Fund.
PURCHASES
The Funds accept the settlement of purchase orders only in available federal
funds. ("Federal funds" are funds deposited by a commercial bank in an account
at a Federal Reserve Bank that can be transferred to a similar account of an-
other bank in one day and thus may be made immediately available to a Fund
through its custodian.)
Each Fund offers investors the choice of investing in two separate classes
of shares--Institutional shares and Financial Intermediary shares. Institu-
tional shares in each Fund are available for purchase by institutional invest-
ors, and, at the discretion of PaineWebber, for purchase by individuals or
other entities. Financial Intermediary shares in each Fund are available for
purchase only by banks and other financial intermediaries for the benefit of
their customers. Financial Intermediary shares bear all fees pay-able by the
Fund to those financial intermediaries for certain services they provide to
the beneficial owners of these shares.
The minimum initial investment is $1,000,000 in Money Market Fund or Govern-
ment Securities Fund (or in a combination of both) and $250,000 in Treasury
Securities Fund. These minimums may be waived at the discretion of PaineWebber
or the Trust. Financial intermediaries purchasing shares for the accounts of
their customers may set a higher or lower minimum for their customers, pro-
vided that when their customers' shareholdings are aggregated, the above noted
minimum investment levels are met. There is no minimum subsequent investment,
except that certain financial intermediaries may establish minimums for subse-
quent investments by their customers. Investors interested in purchasing Fi-
nancial Intermediary shares should consult their
13
<PAGE>
financial institutions concerning any initial or subsequent minimum investment
requirements.
Shares of the Funds are offered for sale, without a sales charge, at the net
asset value per share next determined after receipt and acceptance of a pur-
chase order by the Transfer Agent, subject to timely receipt of federal funds
as provided below. An investor can place a purchase order up until 2:30 p.m.
(Eastern time) for Money Market Fund and 12:00 noon (Eastern time) for Govern-
ment Securities Fund and Treasury Securities Fund by telephoning the Transfer
Agent at 1-888-LIR-FUND and speaking with a representative. Investors may also
place an order through a PaineWebber Investment Executive or correspondent
firm who must then relay the order to the Transfer Agent by the times noted
above. For the purchase of Fund shares to be effected on that Business Day,
the investor must wire federal funds to the Trust's bank account and that wire
must be credited to that bank account by a Federal Reserve Bank on that Busi-
ness Day. Otherwise, the order will be executed as of such times on the fol-
lowing Business Day if federal funds have been received on that Business Day.
Purchase orders may be initiated by any authorized party on the account, in-
cluding the shareholder's PaineWebber Investment Executive. A "Business Day"
is any day on which the Massachusetts offices of the Trust's custodian, State
Street Bank and Trust Company ("Custodian"), and the Transfer Agent, and the
New York City offices of PaineWebber and PaineWebber's bank are all open for
business.
The Trust and PaineWebber reserve the right to reject any purchase order and
to suspend the offering of the Funds shares for a period of time.
The availability of Fund shares to customers of PaineWebber's correspondent
firms may vary depending on the arrangements between PaineWebber and such
firms.
Investors who are purchasing shares should instruct their banks to transfer
federal funds by wire. Wire transfers should be directed to:
Mitchell Hutchins Institutional Funds c/o The Bank of New York
CR DDA A/C #8900337516
FFC PW A/C #
[insert PaineWebber account name and account number]
ABA #021000018
Unless the investor otherwise specifies, all shares purchased will be Insti-
tutional shares.
REMOTE TRADE ENTRY. At its discretion, the Trust may offer eligible institu-
tional investors who meet certain conditions an electronic trade order entry
(RTE) capability. For more information on this option, please contact your
PaineWebber Investment Executive or the Transfer Agent at 1-888-LIR-FUND.
PaineWebber and/or an investor's bank may impose a service charge for wire
transfers.
EXCHANGES
Shareholders may exchange shares of one Fund for shares of the same class of
Money Market Fund, Government Securities Fund or Treasury Securities Fund or
Mitchell Hutchins LIR Select Money Fund (which has a $10,000,000 minimum for
initial purchases, including through exchanges, and a $100,000 minimum for
subsequent purchases) based on the next determined net asset value per share.
Exchange orders are accepted up until 12:00 noon (Eastern time) for each Fund
(2:30 p.m., Eastern time, for exchanges from Money Market Fund into Mitchell
Hutchins LIR Select Money Fund). Exchange orders received after these times
are executed on the next Business Day. If a shareholder exchanges all his or
her Fund shares, the dividends accrued on those shares for the month to date
also will be invested in the shares of the other fund into which the exchange
is made.
Shareholders may place exchange orders by telephoning the Transfer Agent at
1-888-LIR-FUND and speaking with a representative. Investors may also place an
exchange order through a PaineWebber Investment Executive or correspondent
firm, who must then relay the order to the Transfer Agent as noted above. Ex-
change orders may be initiated by any authorized party on a shareholder's ac-
count, including the shareholder's PaineWebber Investment Executive.
Exchange transactions must meet the minimum initial investment of the new
fund. There is no minimum for subsequent exchanges between fund accounts once
they have been activated except as noted above.
The exchange privilege may be modified or terminated at any time and, when
required by SEC rules, on 60 days notice. The exchange privilege is available
only in those jurisdictions where the sale of the fund shares to be acquired
is authorized.
14
<PAGE>
REDEMPTIONS
Shareholders may redeem all or any portion of the shares in their accounts
at any time at the net asset value per share next computed after the receipt
of a redemption request in proper form by the Transfer Agent. Redemption or-
ders are accepted each Business Day up until 2:30 p.m. (Eastern time) for
Money Market Fund and up until 12:00 noon (Eastern time) for Government Secu-
rities Fund and Treasury Securities Fund by telephoning the Transfer Agent at
1-888-LIR-FUND and speaking with a representative. Investors may also place an
order through a PaineWebber Investment Executive or correspondent firm, who
must then relay the order to the Transfer Agent by the times noted above. Re-
demption orders may be initiated by any authorized party on a shareholder's
account, including the shareholder's PaineWebber Investment Executive. Redemp-
tion proceeds will be paid by federal funds wired to one or more of the bank
accounts that have been designated by the shareholder, normally on the Busi-
ness Day the redemption request is accepted. If a shareholder redeems all the
shares owned, dividends accrued for the month to date will be paid in federal
funds and wired at the same time to the bank account(s) designated by the
shareholder.
Redemption requests will be processed by the Transfer Agent and a wire will
be initiated. However, receipt by the shareholder's designated bank account
may be delayed if a Federal Reserve Bank is experiencing delays in transfers
of funds. Neither a Fund nor the Transfer Agent is responsible for the perfor-
mance of a shareholder's receiving bank or any of its intermediaries.
A properly completed account application with signature guaranteed or other
authentication acceptable to the Transfer Agent must be on file with the
Transfer Agent before a redemption request can be processed. The application
requires that the shareholder designate the bank account(s) or PaineWebber ac-
count to which redemption proceeds should be wired. Any change in the account
designated must be submitted in a form deemed acceptable by the Transfer
Agent. If the information provided by a shareholder in a redemption request
does not correspond to the information on the application, the Transfer Agent
will not effect the transaction.
ADDITIONAL INFORMATION ON REDEMPTIONS. Shareholders with questions about re-
demption requirements should consult their PaineWebber Investment Executives,
correspondent firms or the Transfer Agent at 1-888-LIR-FUND. Shareholders will
earn dividends on redeemed shares up to (but not including) the day of redemp-
tion. The redemption price may be more or less than the purchase price, de-
pending on the market value of a Fund's portfolio; however, each Fund antici-
pates that its net asset value per share will normally be $1.00 per share. See
"Valuation of Shares."
There is no minimum amount for redemptions.
ADDITIONAL INFORMATION ON FINANCIAL INTERMEDIARY SHARES. Each Fund's shares
are sold and redeemed without charge by the Fund. Financial intermediaries
purchasing or holding Financial Intermediary shares for their customer ac-
counts may charge customers for cash management and other services provided in
connection with their accounts, including, for instance, account maintenance
fees, compensating balance requirements or fees based on account transactions,
assets or income. The dividends payable to beneficial owners of Financial In-
termediary shares will be lower than those on Institutional shares by the
amount of fees paid by a Fund for services provided by financial intermediar-
ies through which those shares are purchased and held. See "Financial Interme-
diaries." A customer should consider the terms of his or her account with a
financial intermediary before purchasing shares. A financial intermediary pur-
chasing or redeeming shares on behalf of its customers is responsible for
transmitting orders to the Transfer Agent in accordance with its customer
agreements and the procedures noted above.
VALUATION OF SHARES
Each Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Each Fund's net asset value per share is determined by dividing the
value of its investments and other assets minus its liabilities by the number
of Fund shares outstanding. The net asset value per share for Money Market
Fund is determined twice each Business Day at 12:00 noon and 2:30 p.m. (East-
ern time). The net asset value per share for Government Securities Fund and
Treasury Securities Fund is determined once each Business Day at 12:00 noon
(Eastern time).
Each Fund values its portfolio securities using the amortized cost method of
valuation, un-
15
<PAGE>
der which market value is approximated by amortizing the difference between
the acquisition cost and value at maturity of an instrument on a straight-line
basis over its remaining life. All cash, receivables and current payables are
carried at their face value. Other assets are valued at fair value as deter-
mined in good faith by or under the direction of the board.
DIVIDENDS AND TAXES
DIVIDENDS. Each Business Day, each Fund declares as dividends all of its net
investment income. Shares are entitled to receive dividends beginning on the
date the purchase order is accepted; dividends are accrued to shareholder ac-
counts daily and are paid on the last Business Day of the month or upon re-
demption of a shareholder's entire Fund account. Dividends are automatically
paid in additional Fund shares unless the shareholder elects instead to have
dividends transmitted by federal funds wire to either a designated bank ac-
count or PaineWebber account. A shareholder must notify the Transfer Agent in
writing in a form deemed acceptable by the Transfer Agent at least two Busi-
ness Days prior to the end of the month if the shareholder wishes to change
this election with respect to a particular monthly dividend. Shares do not
earn dividends on the day of redemption.
Each Fund distributes its net short-term capital gain, if any, annually but
may make more fre-quent distributions of such gain if necessary to maintain
its net asset value per share at $1.00 or to avoid income or excise taxes. The
Funds do not expect to realize net long-term capital gain and thus do not an-
ticipate payment of any long-term capital gain distributions. Dividends paid
on both classes of shares are calculated at the same time and in the same man-
ner. Dividends on Institutional shares are expected to be higher than those
paid on Financial Intermediary shares because of the higher expenses borne by
the Financial Intermediary shares.
TAXES. Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income and net short-term capital
gain, if any) that it distributes to its shareholders.
Dividends from a Fund's investment company taxable income (whether paid in
cash or in additional Fund shares) are taxable to its shareholders as ordinary
income to the extent of its earnings and profits. Shareholders not subject to
tax on their income will not be required to pay tax on amounts distributed to
them. The Funds' dividends will not qualify for the dividends-received deduc-
tion for corporations.
Some states and localities exempt from their income taxes the portions of a
Fund's dividends that are attributable to interest on U.S. Treasury securities
and certain other U.S. government securities. Dividends attributable to earn-
ings on repurchase agreements and securities loans are, as a general rule, not
eligible for that exemption.
Each Fund notifies its shareholders following the end of each calendar year
of the tax status of all distributions paid (or deemed paid) during that year.
The notice sent by each Fund specifies the portions of their dividends that
are attributable to interest on U.S. Treasury securities and other U.S. gov-
ernment securities that is generally exempt from state and local income taxes.
Each Fund is required to withhold 31% of all taxable dividends payable to
any individuals and certain other noncorporate shareholders who (1) do not
provide the Fund or PaineWebber with a correct taxpayer identification number
or (2) otherwise are subject to backup withholding.
ADDITIONAL INFORMATION. The foregoing is only a summary of some of the im-
portant federal, state and local income tax considerations generally affecting
the Funds and their shareholders; see the Statement of Additional Information
for a further discussion. There may be other federal, state and local tax con-
siderations applicable to a particular investor. Prospective shareholders are
urged to consult their tax advisers.
MANAGEMENT
The board, as part of its overall management responsibility, oversees vari-
ous organizations responsible for the Funds' day-to-day management.
PaineWebber, the Funds' investment adviser and administrator, provides a con-
tinuous investment program for each Fund and supervises all aspects of its op-
erations. As sub-adviser to the Funds, Mitchell Hutchins makes and implements
investment decisions and, as sub-administrator, is responsible for the day-to-
day administration of the Funds.
PaineWebber receives a monthly fee for these services. For the fiscal year
ended April 30,
16
<PAGE>
1998, the advisory and administration fees payable to PaineWebber by each Fund
were equal to 0.25% of the Fund's average daily net assets. PaineWebber has
undertaken to waive 0.05% of its fees and to maintain each Fund's total annual
operating expenses at a level not exceeding 0.30% and 0.55% of the Fund's av-
erage daily net assets annually for Institutional shares and Financial Inter-
mediary shares, respectively. After PaineWebber's waiver of a portion of the
fees and/or expense reimbursements for the fiscal year ended April 30, 1998,
Money Market Fund's, Government Securities Fund's and Treasury Securities
Fund's total expenses for their Institutional shares represented 0.29%, 0.30%
and 0.30%, respectively, of their average net assets, and Money Market Fund's
total expenses for its Financial Intermediary shares represented 0.54% of its
average net assets. No Financial Intermediary shares of the other Funds were
outstanding during that period. PaineWebber (not the Funds) pays Mitchell
Hutchins a fee for its sub-advisory and sub-administration services, at an an-
nual rate of 50% of the fee received by PaineWebber from each Fund for advi-
sory and administrative services.
In accordance with procedures adopted by the Funds' board, each Fund may pay
fees to PaineWebber for its services as lending agent in its portfolio
securities lending program. Mitchell Hutchins investment personnel may engage
in securities transactions for their own accounts pursuant to a code of ethics
that establishes procedures for personal investing and restricts certain
transactions.
PaineWebber and Mitchell Hutchins are located at 1285 Avenue of the Ameri-
cas, New York, New York 10019. Mitchell Hutchins is a wholly owned asset man-
agement subsidiary of PaineWebber, which is in turn wholly owned by Paine Web-
ber Group Inc., a publicly owned financial services holding company. At July
31, 1998, PaineWebber or Mitchell Hutchins was investment adviser or sub-ad-
viser to 32 registered investment companies with 69 separate portfolios and
aggregate assets in excess of $40.5 billion.
PaineWebber is the distributor of each Fund's shares.
FINANCIAL INTERMEDIARIES
Financial intermediaries, such as banks and savings associations, may pur-
chase Financial Intermediary shares for the accounts of their customers. The
Trust has adopted a shareholder services plan ("Plan") with respect to Finan-
cial Intermediary shares. PaineWebber implements the Plan on behalf of the
Trust by entering into a service agreement with each financial intermediary
that purchases Financial Intermediary shares requiring it to provide support
services to its customers who are the beneficial owners of Financial Interme-
diary shares.
Under the Plan, each Fund pays PaineWebber an annual fee at the annual rate
of 0.25% of the average daily net asset value of the Financial Intermediary
shares held by financial intermediaries on behalf of their customers. Under
each service agreement, PaineWebber pays an identical fee to the financial in-
termediary for providing the support services to its customers specified in
the service agreement. These services, which are described in greater detail
in the Statement of Additional Information under "Other Information--Financial
Intermediaries," may include: aggregating and processing pur-chase and redemp-
tion requests from customers and placing net purchase and redemption orders
with PaineWebber; providing customers with a service that invests the assets
of their accounts in Financial Intermediary shares; processing dividend pay-
ments on behalf of customers; providing information periodically to customers
showing their positions in Financial Intermediary shares; arranging for bank
wires; responding to customer inquiries relating to the services performed by
the financial intermediary; providing sub-accounting with respect to Financial
Intermediary shares beneficially owned by customers or the information neces-
sary for sub-accounting; forwarding shareholder communications from a Fund to
customers, if required by law; and such other similar services as the Trust
may reasonably request from time to time to the extent the financial interme-
diary is permitted to do so under federal and state statutes, rules and regu-
lations.
Under the terms of the service agreements, financial intermediaries are re-
quired to provide to their customers a schedule of any additional fees that
they may charge customers in connection with their investments in Financial
Intermediary shares. Financial Intermediary shares are available for purchase
only by financial intermediaries that have entered into service agreements
with PaineWebber in connection with their investment. Financial intermediaries
providing services to beneficial owners of Financial Inter-
17
<PAGE>
MITCHELL HUTCHINS'
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
SEPTEMBER 1, 1998
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUNDS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO
PROVIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT
AN OFFER TO SELL SHARES OF THE FUNDS IN ANY JURISDICTION WHERE THE FUNDS OR
THEIR DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
PAINEWEBBER
(C)1998 PAINEWEBBER INCORPORATED
S641
